Dischargeable vs Non-Dischargeable Debts in Bankruptcy
by Philip Ahn, Attorney
What can be discharged in bankruptcy depends on the type of bankruptcy that is filed. Chapters 7 and 13 allow for certain debts to be discharged. However, there are many types of non-dischargeable debts that bankruptcy can’t resolve.
A “discharge” means that the debtor is not required to pay any debts discharged in the bankruptcy. Essentially, it’s a court order that prohibits creditors from making any more debt collection activities against the debtor. These include lawsuits, phone calls, wage garnishments, emails, letters, etc.
There are 19 categories of dischargeable debt allowed in chapter 7. Typically, secured debts like credit cards, private loans, and medical bills can be discharged in chapter 7. Due to the nature of chapter 13, fewer debts can be discharged.
If you are unsure about what debts to include in your bankruptcy filing, it’s in your best interest to consult with a proven bankruptcy attorney.
Learn more below about the differences between dischargeable and non-dischargeable debts in bankruptcy or click here to be connected with a bankruptcy lawyer for a free consultation.
The U.S. Bankruptcy Code is designed to give individuals and businesses that have amassed more debt than they can pay a second chance. Bankruptcy must be filed in a federal court. The goals of bankruptcy include:
- Providing debtors filing bankruptcy a “clean slate” by relieving them of certain debts
- The repayment in part or whole of creditors, if possible
- Reorganizing debt and business affairs
People and businesses file for bankruptcy for different reasons. Most bankruptcies are filed under chapters 7 or 13. Each chapter is unique in its procedures, expectations, and outcomes. Learn more below.
- Chapter 7: Otherwise known as a “liquidation” bankruptcy, chapter 7 typically involves liquidating a debtor’s assets to repay creditors. However, many state and federal bankruptcy exemptions may allow debtors to keep some property.
- Chapter 13: Chapter 13 is a reorganization bankruptcy. It allows debtors to pay off some or all of their debts via a repayment plan. Once completed, they receive a discharge. In many cases, people who don’t qualify for chapter 7 opt for chapter 13 instead.
Mistakes made in the filing process can lead to delays, denials, and worse. If you’re considering bankruptcy, it’s recommended that you consult with a bankruptcy attorney to discuss your options.
Dischargeable Debt Examples
Chapter 7 dischargeable debt examples
In chapter 7, there are many types of dischargeable debts. While chapter 13 does not offer as many, it does provide some options that are not available in chapter 7. It’s important to note that every case is different.
What can be discharged in one case may not be eligible in another for a variety of reasons. A few of the most commonly discharged bankruptcy debts include:
- Credit cards
- Medical bills
- Personal loans
Chapter 13 dischargeable debts examples
In chapter 13, debt is typically discharged after the successful completion of a repayment program. Absent this repayment, no discharge of any debt is approved. In some cases, the court may grant a “hardship discharge” to debtors who cannot satisfy their repayment plan. However, that is not common.
Some debts are dischargeable in chapter 13, but not allowed in chapter 7. They include:
- Debts arising from malicious and willful property damage
- Debts raised to pay for tax obligations (that can’t be discharged)
- Property settlement debts arising from divorce
Non-dischargeable Debt Examples
The difference between dischargeable and non-dischargeable debts depends on the chapter you file bankruptcy under, plus many other factors. Typically, debts described as “non-dischargeable” cannot be discharged via bankruptcy. They include, but are not limited to:
- Student loans
- Most taxes
- Money borrowed to pay for taxes (non-dischargeable in chapter 7, allowed in chapter 13)
- Child support payments
- Certain “high-dollar” purchased made within 90 days of filing bankruptcy
If you are unsure if your debts can be discharged, you should speak with an experienced bankruptcy lawyer as soon as possible. They can help ensure that you feel under the right chapter, follow correct procedures, have accurate paperwork, and understand the options available to you.
Frequently Asked Questions About Bankruptcy Debt
There are nearly 700,000 bankruptcy filings each year in the U.S. With that in mind, it’s in your best interest to consult with a bankruptcy lawyer for answers to more personal and unique questions.
What Debts Are Dischargeable in Chapter 7?
Generally, only unsecured debts are dischargeable in chapter 7. If you are interested in filing a chapter 7 for relief from student loans, child support, or other types of secured debts, it may not be the best option for you. In some cases, a judge may not allow a discharge due to bankruptcy laws and limitations. Speak with your bankruptcy attorney to learn more.
Are Debts Discharged in Chapter 13?
Yes. Chapter 13 bankruptcy does allow for discharges. Unlike chapter 7, you must complete the terms of your repayment plan to receive a discharge. If you do not, your bankruptcy case may be dismissed. That means that your creditors could resume all debt collection activities.
Are Personal Loans Dischargeable?
Typically, yes. Personal loans are a type of unsecured debt that can be discharged in chapter 7 and chapter 13 (pending the repayment program’s completion).
However, in some instances, a judge may not allow a discharge of personal loans. It depends on when you received the loan, what it’s used for, and under what circumstances. Speak with your bankruptcy attorney to learn more.
Can Judgements Be Discharged in Bankruptcy?
Bankruptcy can discharge judgments in chapter 7 and chapter 13 cases. However, there are no guarantees. Judgment discharge usually depends on the kind of judgment and whether a lien is placed on your assets.
If the debt in question qualifies for discharge under the chapter you file, then there is nothing a creditor can do to reverse it (in most cases).
Is Chapter 7 Discharged Debt Taxable?
If you receive a discharge from bankruptcy, the debt that is canceled is taxable. You are required to report all discharged debts on your tax returns. Regarding tax refunds, you should be aware of any refunds based on income earned before filing bankruptcy.
That means that your refund goes to your estate. However, you can keep tax refunds based on what you earn after filing bankruptcy. You should consult with a tax professional and your bankruptcy attorney for more information.
Can I Add a Debt to Chapter 7 or Chapter 13 After Discharge?
Usually, the debt that you add at the time of filing is a part of the bankruptcy. All other debts are not included. However, there are certain exceptions.
For instance, debt originating before your bankruptcy might be eligible for discharge, but you will need to file an amendment and complete a new schedule list of creditors. Depending on your circumstances, it’s recommended to consult with an attorney before attempting to add debt.
Filing For Bankruptcy Without A Lawyer
Otherwise known as filing pro se, many individuals across the nation choose to file bankruptcy without a bankruptcy lawyer. However, that is typically not recommended. Listed below are a few reasons why hiring a bankruptcy lawyer might be in your best interest.
- Bankruptcy lawyers substantially increase the chances of receiving a discharge.
- If bankruptcy is not suitable for you, they can advise and offer alternatives.
- Your bankruptcy attorney can help to identify and eliminate all eligible debts.
- Lawyers have relationships with the bankruptcy court, trustees, and judges.
- Hiring a bankruptcy lawyer saves time.
Working with an attorney experienced in bankruptcy law can ensure that you eliminate the most debt possible as quickly as possible. If you file bankruptcy without an attorney, mistakes and omissions can lead to dismissal, delays, and potentially more.
Unless you are filing chapter 7, have few to no assets, and a low income, hiring a lawyer is typically the best option.
How Much Does a Lawyer Charge For Bankruptcy Cases?
Many people are surprised to learn how much they have to pay in court costs and legal fees to get themselves out of debt. Bankruptcy lawyers can be costly. Exact prices depend on many factors such as debt levels, income, type of debt, state you live in, and more.
You can generally expect to pay between $1,500 – $3,500 for a chapter 7 bankruptcy lawyer and between $3,000 – $7,000 for a chapter 13 bankruptcy attorney.
Most lawyers want their money upfront. They won’t even start working on your case until they are paid. That barrier leads many people to avoid bankruptcy while their finances suffer or file it themselves, leading to many more complications.
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Hiring a bankruptcy lawyer helps to ensure that all of your qualifying dischargeable debts are canceled so you have a fresh start. However, paying for bankruptcy legal fees upfront can sometimes prove impossible.
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